Why:
Yesterday we touched on several reasons why a dip to start
the week should result in higher prices heading into mid- to
late-week. The early gap down didn't last long, as
buying pressure came in immediately, then we just kind of
petered out the rest of the day. By the end of it, the
S&P 500 SPDR (SPY) did, technically, close lower on the day
for the fifth consecutive session.
This is only the 3rd 5-day
losing streak since March 2009 (the others were 6/24/10 and
7/2/10). In SPY's history, when it suffered 5 straight
down days into a Monday, then through Thursday it was up 7
out of 8 times, with a +1.7% average return (the loser was
-0.3%). So, again, some reasons to expect the recent
swoon to abate here as we head toward option expiration.

Why: In late May, we looked at
quite a few bullish intermediate-term studies - we got
a major surge in pessimism, then several positive breadth
thrusts and positive price performance, all in the context
of an ongoing bull market. But after just a brief respite, June 4th's Payroll Report kneecapped
the rally attempt and took us to a new closing low.
In the process, we saw very
oversold conditions and some give-up among
Rydex traders and
individual investors. In early July, we saw
even more evidence of excessive pessimism. The big
missing piece, though, was the price action - the S&P was
making a clear series of lower highs and lower lows, which
muddled the risk/reward of stepping in and buying into those
pessimistic conditions. The market has obviously
recovered well from there, and with the advance/decline line
making a
new all-time high, things were looking brighter for
stocks. But August 11th's knock-down gave us the
potential for a failed break of important resistance, and
we're back to being stuck in a longer-term trading range.

On June 29th, we got
another spike in bullish (for the market) indicators above the 30% level,
similar to what we saw in late May. Once again, it wasn't quite a
spike in extremes like we've seen at other major lows, but it was
apparently enough for the buyers to step in, as we've rallied well since
then. While the percentage of our indicators at a bullish extreme
have understandably drifted lower in response, oddly so has the number
of bearish ones. We have seen few of our indicators reflect too
much optimism in the rally thus far.

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